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Can You Hurt Your Chances for Federal Financial Aid By Saving Too Much for College?

College tuition prices are going up—and for most students, it outpaces all financial aid by a long shot. Students—and their parents, if you’re of traditional college age—are generally expected to pay a large chunk of tuition through savings, income, loans—some high-interest, some more reasonable—mortgages, and other sources.

Most advice out there on paying for a college education will tell you that saving for college is crucial. But the truth is that both the federal government and the colleges themselves take into account your (or your family’s) savings as well as income. There’s a possibility that the more you save, the less you’ll be eligible for in student aid.

At most colleges, parents (or students) are expected to chip in a certain amount, called an “Expected Family Contribution” or EFC, based on their earnings and other sources of money. The more you have, the larger your EFC will be—and the less need-based financial aid you will be eligible for. But whether or not your savings will impact your financial aid depends on a variety of factors. These include:

Your age, or your parents’ age

Your savings are counted toward your Expected Family Contribution based on a weighted algorithm that takes the age of the oldest parent into account. The older the parents are, the less the savings will count toward your expected contribution. This applies to savings in 529 plans, home equity, small business, and generally taxable assets.

Your income, or your parents’ income

If your family’s expected contribution is assessed at a higher amount than the entire cost of the school for that year, your savings won’t matter. Savings only matter if the family’s expected contribution is lower than the cost of attendance in total. So after a certain income level—what the exact numbers are will depend on the school—savings won’t hurt your financial aid because you make too much to qualify for need-based aid anyway.

Outside scholarships

Sure, you might have put a ton of work into researching, entering, and qualifying for scholarships from charitable organizations, corporations, and other organizations that offer education grants to deserving students. But those scholarships may mean you’re eligible for less aid from your college or the government.

Basically, if all the aid you receive from your college, the government, and outside scholarship organizations is more than $300 above your need as calculated by your income level, your college is required by the federal government to reduce the amount of need-based financial aid you get. If you fail to report an outside scholarship, you could be required to pay back some of the money.

Generally, if you do receive a scholarship from an outside source, it’s up to your college to decide where in your financial aid package to reduce your funding. If the college replaces loan dollars rather than grant awards it offers, that’s a decent deal—anything that reduces your loans is a good thing. Some colleges may count any excess award money toward future semesters.

In general, it’s better to save than not to save—because you never know what your student loan package will contain, and paying with savings is always better than taking out a loan. But your college savings will have an impact on your financial aid package. If you’re not sure, talk to a financial aid officer at your traditional or accredited online college to find out how much of your savings will be taken into account for your Expected Family Contribution in the coming semester—as the formula is different for everyone.

ABOUT THE AUTHOR

Jennifer Williamson

Jennifer worked as a GED teacher for an adult education nonprofit for two years. Her students came from all walks of life, and ranged in age from sixteen to sixty-eight. During that time, she became knowledgeable about the unique needs of non-traditional and adult learners. She counseled hundreds of students about their higher education options, including online degree programs.